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Maximizing innovation requires a strong patent system

How could anyone believe that innovation will be maximized, or could even exist at all, with a weak patent system that offers innovators little or no protection? As ridiculous as it seems there are many who believe that the patent system stifles innovation and that patent owners of all shapes and sizes are practically evil. The theory goes like this: if someone is granted a patent an innovation will be removed from the public domain.

So all of you patent owners out there who spent all that time, money and energy innovating were apparently wasting your time because the innovation always existed and now you are just seeking to charge monopoly rents on others for no reason whatsoever!

But if no one knew about it before you innovated, how exactly could it have existed in the public domain to be removed? So if a researcher were to discover a foolproof cure for cancer that would save everyone afflicted with that horrible disease we would be removing something from the public domain if a patent were granted? But how could that possibly be the case?

The inconvenient truth is that the arguments of patent critics fall like a house of cards the moment they are placed under even the most modest logical scrutiny. In truth, the quickest way to get less innovation is to destroy the patent system.

There is simply no evidence that a weaker patent system fosters innovation, but there is overwhelming evidence that a strong patent system does foster innovation, leads to growth, investment from abroad and a more prosperous economy.

We know that a weak patent system does nothing to foster innovation because where there are weak patent rights, there is no innovation, and there is no economic activity. To confirm this undeniable truth simply look at the country rankings in The Global Innovation Index 2014, which is created by the World Intellectual Property Organization (WIPO). At the bottom of the rankings you see countries like Rwanda, Nigeria, Mali, Iran, Zambia, Venezuela, Ethiopia, Zimbabwe, Pakistan, Myanmar, Yemen and Sudan. At the top of the rankings you see countries like Switzerland, the United Kingdom, Sweden, Finland, Netherlands, the United States, Singapore, Denmark, Hong Kong, Ireland, Canada, Germany, Israel, South Korea, Australia and Japan. With universal accuracy you can predict whether a country will have stronger or weaker and innovation infrastructure. Is it causative? I think it is, but even if you want to claim there is just a correlation at play even the most zealous critics, if being intellectually honest, would have to admit the correlation is striking and highly suggestive at a minimum.

If a weak patent system were the answer you would expect countries that have a weak patent system, or no patent system at all, to have run away innovation. What you see, however, is the exact opposite. Further proof of this comes from how the World Bank classifies countries based on gross national income (GNI) per capita. In 2007, high-income countries had a GNI per capita of over USD $11,456; upper middle income of USD $3,706 – $11,455; lower middle income of USD $936 – $3,705 and low income of USD $935 or less. Where do you suppose you see the most patenting? If patents inhibit economic growth and opportunities, then you would expect to see a higher percent of patents in the low-income economies, but oddly enough that is not what you see. You find that the overwhelming majority of patent activity is in the high-income economies. Indeed, upward of 85% of patent activity is in high-income economies. With that being the case how can anyone logically argue that patents get in the way of economic development?

A poorly functioning system to administrate patents and enforce property rights may create a deadweight loss for the economy and make it more likely for countries to be caught in a middle-income trap. Conversely, improved enforcement of property rights enhances innovation and translates into higher wages in the design sector, which would draw more high- ability workers into that sector.

High-income economies where patent rights are strong see a tremendous amount of patent activity while those lower income, middle income and even upper middle income economies, where patent rights are not very strong and not very desirable, see very little patent activity.

Those who don’t believe in a patent system challenge Bayh-Dole claiming that it has been a failure, but the facts suggest the opposite is true. By any rational definition Bayh-Dole has been a success beyond the wildest dreams. In fact, according to a recently release study by the Biotechnology Industry Organization (BIO), from 1996 to 2013 “academic-industry patent licensing bolstered U.S. gross industry output by up to $1.18 trillion, U.S. gross domestic product (GDP) by up to $518 billion, and supported up to 3,824,000 U.S. jobs.”

If patents stifle innovation what is the explanation for so many university based startups producing so many new commercial products? If patents stifled innovation you would anticipate few or no university startups founded on patented technology and virtually no new commercial products attributed to patented technologies. The exact opposite is what you see.

The basic science that led to the development by the biotech industry and many life-saving medicines began with federally funded research, including vaccines against hepatitis B and cervical cancer, cancer medicines, and human growth hormones. It has all been possible because of patents and enabled by Bayh-Dole. Indeed, prior to the enactment of Bayh-Dole there were a grand total of ZERO drugs commercialized from underlying university research. Since Bayh-Dole 153 new drugs, vaccines, or new uses for existing drugs have been commercialized from underlying university research.See The Role of Public-Sector Research in the Discovery of Drugs and Vaccines, The New England Journal of Medicine, February 10, 2011. Again, if patents stifle innovation you would have predicted the exact opposite of what history has shown.

But exactly what innovation has been stifled by patents? Any objective review of the current state of innovation has to conclude by observing that this is the golden era of innovation. Indeed, the example that patent critics always use is the Smartphone. Of course, the Smartphone as we know it today has only existed since 2007 and despite what we are told is an absurd glut of patents every new version of the next Smartphone has more features, greater battery life, improved displays, better cameras, is thinner and more lightweight, and is generally just better, stronger and faster. So exactly what has been stifled by all those Smartphone patents? Nothing as far as I can tell. And, the claim that never has there been more patent litigation over a technology is pure fiction. In fact, the patent wars over the telephone sparked 587 lawsuits compared with about 222 lawsuits relating to smartphones.

The reason that some will say that patents stifle innovation is because of a fundamental failure to understand what it means to innovate. To innovation is to do something new. In fact, the definition of “innovation” is “(1) something new or different introduced; or (2) introduction of new things or methods.” Generally speaking, if one is infringing on a patent then they are not innovating. Instead, what is happening is the very antithesis of innovation. If you are infringing a patent then that must mean that someone other than you obtained the rights to the innovation in the first place. Your use of that innovation without permission is not in and of itself innovative, but rather it means you have misappropriated what someone else newly introduced.

In other words, the fact that you are prevented from selling a product or offering a service that you have never before offered yourself does not mean that patents get in the way of innovation. It means that you didn’t innovate that which you are copying and you don’t own the rights because someone else – the real innovator – obtained the rights as a reward for being the one who truly innovated in the first place.

Sure, there are bad patents, but the problem with bad patents is not nearly what you have heard it to be. During 2014 there were 578,802 utility patent applications filed at the United States Patent and Trademark Office, with 300,678 utility patents issued. See Patent Statistics Table. Even if the USPTO is correct 99.5% of the time that would mean that 1,503 patents during 2014 were improvidently issued. Although it should be self evident, it is unrealistic to expect perfection in any system. The USPTO employs nearly 8,500 patent examiners, who are the front line decision-makers. With that number of individual decision-makers and the volume the USPTO handles in a given year there will be some mistakes. The reality that no system is perfect, and that there will be mistakes made by patent examiners, does not mean that the patent system should be or needs to be scrapped. If perfection is the only acceptable outcome then we might as well shutter all institutions because perfection is never obtainable.

But those whose ideology precludes them from seeing the merit in a patent system will ignore all of the objective evidence that can be mustered, as well as the reasonable inferences, and simply argue that correlation is not causation. They say it as if the pronouncement is so profound that it automatically proves they are correct without need to utter a single, solitary, identifiable fact to support the notion that there will be great innovation without a patent system.

It is certainly true that correlation does not prove causation, but when the patent critics make that argument what they are really saying is that they will ignore all of the proof presented that justifies the merits of a patent system and then pretend that there is an absence of evidence to suggest a patent system is a perquisite to maximizing innovation. They even sometimes gleefully claim that all of the proof is on their side, but yet struggle to come up with a single shred of objective evidence.

Of course, the reality is far from what the patent critics say. Nowhere around the world can anyone point to a single country where innovation has flourished without a patent system. But we know that strong patent protection encourages foreign direct investment, and foreign direct investment “has strong, positive effects on a country’s growth, productivity and incomes.” See The Benefits of Respecting the IP Rights of Foreign Pharmaceutical Producers (pages 2 and 8 specifically). Therefore, we can point to many countries that have established thriving economies built on both foreign direct investment and domestic innovation once a patent system with meaningful protections has been adopted.

Simply stated, those that want to dismantle the patent system or further weaken patent rights should bear a heavy burden to demonstrate the veracity of their claims. They should be required to prove that innovation at current levels will at a minimum be guaranteed to maintain at current levels if we are to take a leap of faith and disregard what history, common sense and the law of economics predicts will happen.

Incentives are essential to innovation in order to make it feasible to undertake the expense necessary to engage in research and development. If you cannot benefit from the investment you make and your innovation is available to be copied by free riders immediately upon it being made, why would you ever invest to innovate? Worse, free riders are universally able to push true innovators out the marketplace because they are able to compete at a lower price point because they didn’t have to invest anything in creating the innovation in the first place. This undeniable economic reality is simply ignored by those who think innovation is stifled by patents. As if the inability to own what you create will encourage you to create for the benefit of others who will steal what you created and profit from the fruit of your labors.

The patent system has been the single most important force behind innovation in history. As Abraham Lincoln noted, the patent system fuels the fire of genius by allowing those who create to own their own innovations, which makes it feasible for innovators to innovate rather than needing to find day jobs in order to support innovation as a hobby.

We know from history that where patent rights are strongest is where companies locate, innovate and grow. Where patent rights are weakest there is no foreign direct investment, companies do not go there and economies suffer. Once upon a time the United Kingdom dominated the biotechnology industry, but now the United States dominates thanks to a strong and liberal patent system. If we curtail patents we will be forfeiting not a single industry, but multiple industries and the U.S. economy.

There is no doubt that there are bad actors within the patent industry. There is also no doubt that these bad actors misuse patents and engage in extortion-like shakedowns, as several federal courts have pointed out. To punish the entire industry for the actions of a few bad actors is misguided. We can identify those who are the nefarious actors and punish them directly without destroying the patent system. After all, does anyone believe that those who are manipulating the system and engaging in reprehensible behavior will simply start to play nice even if the patent system is destroyed? Of course not. They will simply move on to what is next. But in their wake will be the ruins of a once great patent system that fueled America’s innovative might. That would be truly unfortunate.

The Author

Gene Quinn
is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. Gene is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 9 Comments comments.

BennyApril 1, 2015 7:18 am

Gene,
Perhaps you would like to add a few words on how patents affect competition.

Gene QuinnApril 1, 2015 8:31 am

Benny-

I’ve written before about how patents foster competition.

When creative, inventive people are blocked by a patent they engineer and invent around. This causes innovation to move, sometimes leap, forward. Patents are also pro-competitive because they enable investment.

The conventional wisdom that patents are bad for competition is simply not something you see playing out in history. If patents were bad for competition one would predict that the smartphone industry would lack competition, but we see the exact opposite. So when you concern yourself with what happens in life there is no credible evidence to suggest that patents are anti-competitive.

Compare this, however, with the possibility that someone with market power could misuse their patents. That is not a function of the patent or the patent system, but a function of an antitrust or antitrust-like (think patent misuse) abuse of market power.

-Gene

BennyApril 1, 2015 9:05 am

Gene,
Thanks for the insights. However, it is also instructive to note how some products become commodities once the patents protecting them expire.

step backApril 1, 2015 1:43 pm

“Innovation” versus patentable “invention”.

Perhaps I’m being too much of a definitional curmudgeon, but to my mind “innovation” is a trickster’s word.

It does not say to “whom” the thing being introduced is “new” and it doesn’t say “who” is doing the honor of the introduction.

So if I go ahead and introduce the “Pet Rock” to a new generation of kids who have never seen it before, I am an “innovator”.

By the same token, an infringer who introduces someone else’s invention to a group of people who were not aware of it is an “innovator”.

An inventor who fails to get his invention noticed by the public is not an “innovator”.

Beware the jabberwok word.

TylerApril 7, 2015 1:58 pm

Gene,

I am writing a rogerian argument on this subject of patent law. I have been working on a few compromises that I feel would make the system better balanced in the sense that it can not be abused. I am by far no expert in patent law and was hoping to have my ideas challenged by a true expert. If you could find the time to answer some questions, it would greatly help bring awareness to students in my area.

Thanks,

Tyler

TylerApril 7, 2015 2:30 pm

Sorry for the extra comment, but i forgot to check the e-mail box in case i get a reply.

AnonApril 7, 2015 4:34 pm

Tyler,

In employing your Rogerian argument, I would suggest that you list out your premises that serve as the foundation of your solution.

I often find that the idea of “finding common ground” is chimerical based on assumptions of what should or should not serve as a foundation. Often, there are aspects being asked to be foregone without consideration that such changes carry a very real impact to people interested in the patent system, and – further – have historical and well grounded legal roots.

To start “from scratch” and from opposing interests in today’s contentious environment may yield some “starting point” of commonly accepted features with your systematic approach, but if you list the foundation elements, I (and others trained in this field) can likely tell you whether the structure of your resulting “commonality” will be strong enough to bear any real-world weight.

I also believe that you may find that several factors leaning towards “balance” are factors outside the domain of patent law itself. These factors may include the general cost of litigation, the general nature of property ownership, and the general nature of corporate structures.

Best wishes to you in your endeavor.

Amnon M CohenApril 14, 2015 11:30 am

Hi All:
If you agree, that Commercial Strength + Patent Insurance are key to modern patenting, please consider my wisdom shared on the yet further reaching “Taxation Rights Treaty” through the original proposal of “The PrePatent Registry and its Trading-Post”.

At this time, so to comply with the limitations of the existing Patent Office, I employ the way of being 1st to Invent, 1st to File plus 1st Not to Publish.

AnonApril 14, 2015 2:50 pm

Ami,

Respectfully, you need to either get a better translator, or marshal some discipline in your writing.

Your choice and use of words presents a fairly unintelligible garble. You may have some ideas that could be discussed, but it is far too much effort to figure out what those ideas are.

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